Consolidation comes to India

NEW DELHI: Major brand owners and retailers are rationalising their portfolios in India, as they prepare for a potential slowdown in sales across many categories in the consumer goods industry.

GlaxoSmithKline, the healthcare group, is reducing its emphasis on the mass market, a sector it previously targeted by rolling out lines like Foodles, the noodles line, and Horlicks Chill Dood, a milk drink, in 2009/10.

"We don't want to play in mass segments, in 'me too' segments. We will only enter segments where we can differentiate with science," Zubair Ahmed, managing director, GSK Consumer Healthcare, told Livemint.

By contrast, Sensodyne toothpaste, aimed at people with sensitive teeth, assumed leadership of its category in just two years, while malted milk drink Horlicks and health drink Boost yield over 70% of revenues.

Nestlé India, the local arm of the Swiss multinational, has also announced plans to rein in marketing support for low-cost offerings like packs of Munch wafers costing Rs5 and Nescafé coffee powder commanding Rs2 to Rs5.

Ullas Kamath, joint managing director of Jyothy Laboratories - the parent of brands including Ujala washing powder and Maxo insecticide - also reported that its emphasis has shifted over the last six months or so.

"Earlier, the thinking was that we wanted to grow in every category and every geography. Sales growth was important. Now sales growth and EBITDA are important," he said.

The firm is currently focusing on seven "power brands", boosting adspend behind these offerings by Rs150 crore. "We have to decide how we want to grow and where to spend the money," Kamath said.

One reason for the adoption of these strategies is the weak forecast for the FMCG sector. "The outlook for the next 18 months is not so good," said Rachna Nath, leader, retail and consumer, PriceWaterhouseCoopers India.

Market saturation is another, with research firm Nielsen reporting that 7,437 products were launched in the consumer packaged goods sector in the 12 months to October 2012, versus 2,850 over the same period in 2010.

"In FMCG, only 20-25% of SKUs and new variants/launches survive and success rate is thus at best 20-25%," said Devendra Chawla, president, Food Bazaar, the grocery chain.

Retailers themselves are taking similar steps to brand owners, with Shoppers Stop intending to phase out the IT and consumer durables sections from its HyperCity hypermarket chain in the next 15 months or so.

"There will be some ups and down in the year ahead and it's better to be prepared," Govind Shrikhande, managing director, Shoppers Stop, said.